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Bjarne Schieldrop: Crude oil comment $35/b or $70/b?

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9 år sedan

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8 september, 2015

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Crude oil comment – Down below 30 dma again
China crude oil imports down in August after record imports in July
Meeting hedge funds in London last week a question posed was: $35/b or $70

Crude oil comment – Down below 30 dma again

Last Monday Brent crude broke above the 30 dma line for the first time since June 24. As such it was a significant break with the two months long downtrend. Yesterday it broke down below that line again which roughly stood just above $49/b. The latest huge gyration in the oil price has been mostly about financial flows and short covering and less about fundamentals. The fact that we broke and closed down below the 30 dma again yesterday gives a sinking feeling that the latest financially driven bounce, was just that, financially driven. Thus having blown off some of the short positioning in the market we may be back to more fundamentally driven prices. The short positioning is however still huge and short covering could come into play again. For now however we are down into bearish territory. This morning Brent crude is rebounding 1.2% to $48.2/b after yesterday’s 4% sell-off with a close of $47.63/b. Equities rising some 1.5% in Europe and 3% in Shanghai helps to lift the oil price this morning where also industrial metals are higher.

China crude oil imports down in August after record imports in July

The 3 mth average is still up 20% y/y and the August import was up 5.6% y/y. So not all that week.

Meeting hedge funds in London last week a question posed was: $35/b or $70/b

We met with hedge funds in London last week. Where are we heading in terms of oil prices longer term was of course a key question. While the future will be different from the past, they still posed the question whether we are now going to move back to the historical inflation adjusted average oil price of $35/b. The question posed was thus: will we move to $35/b or $70/b rather than asking if we are heading to $70/b or to $100/b over the next 5 years. BP’s inflation adjusted oil prices back to 1861 has an average of $34/b in 2014 dollars. Since 1974 the average is however $58.3/b. SEB’s current view is that we are going to revert back to $70/b during the next 5 years in a response to the huge, ongoing cap-ex cuts in the oil industry. The current market price for Brent crude December 2019 is $62.7/b and just $2.6/b above the recent low of $60.07/b from August 24. Substantial producer hedging in deferred oil contracts has been quoted as a key driver for the decline in oil prices in July. If oil producers are required by their owners or lenders to hedge more as the pain in the oil sector intensifies, there could be more downward pressure in long dated contracts. At the moment the longer dated price (5 year) is pretty close to the real price average of $58/b since 1974.

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China imported significantly less crude oil in August

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Stronger inventory build than consensus, diesel demand notable

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2 dagar sedan

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21 februari, 2025

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Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

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Analys

Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

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4 dagar sedan

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19 februari, 2025

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Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Bjarne Schieldrop, Chief analyst commodities, SEB

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

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Analys

Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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6 dagar sedan

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17 februari, 2025

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Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.